Via comment server: capandtrade13
April 5, 2014
Clerk of the Board
California Air Resources Board
1001 I Street
Sacramento Ca, 95814
Following up on both our recent conversations, and the release of the 15-Day Amendment Package (15-Day Package), Paramount Petroleum Corporation and its parent, Alon USA Energy, Inc. (collectively, Alon) hereby submits its comments. Alon has participated from the beginning on the refinery benchmarking process, and has repeatedly submitted comments that both support the Atypical concept (before its removal), especially as it relates to Asphalt refineries, and highlight the unique challenges facing smaller, less-complex refineries in California. Challenges that will be made more difficult if the proposed amendments are adopted.
Summary of Comments
· Strong opposition for the staff proposal which removed the separate Atypical refinery category and a separate refinery benchmark (If the Atypical bench mark is not retained Alon proposes that Atypical refineries be allowed to continue to use the “Simple Barrel” approach);
· Support for the previous size and complexity metrics used to determine what defines an Atypical refinery in California;
· Strong opposition for the continued inclusion of the concept of “negative true-up” or “negative allocation” without proper public input;
· Need for continued discussions concerning the unique issues associated with Alon’s past, existing and future California operations.
Alon and CARB have worked together continuously for more than a year on these issues, and we are very disappointed by the 11th hour policy reversal. From October to March, the entire discussion between Alon and CARB was to ensure accurate data to set two separate benchmarks.
With a final vote scheduled for April, Alon requests that the item not be open for a final vote of the Board. Rather, additional time be granted to allow both Staff and stakeholders to have some additional time to review together the underlying data and assumptions that went into the policy decision at hand. Alon believes that CARB staff used insufficient data to draw their conclusions and therefore requests additional time to work through the issues with staff after direction is provided by the Board.
Detailed Comments—Need for Atypical
Formal recognition and separate benchmarking of “atypical” refineries in the Cap and Trade Program is a key policy recommendation Alon supports. Not all refineries in California are large and complex, and not all of them are of a simple single site configuration; the previously defined atypical category appropriately recognized this reality. What defines a refinery as being “atypical” is certainly regional in nature; therefore it is entirely appropriate to establish criteria for an atypical California refinery based on the state’s existing inventory of refineries. Alon supported the proposed California-specific atypical criteria metrics of less than 12 process units and 20 million barrels of crude throughput per year. Staff’s removal of this category is a very significant POLICY change at the end of a long regulatory process. Such policy changes are reserved for the Board, and can not be conducted in a 15-Day review package, especially one released right before the entire package is presented to the Board in a “thumbs up/thumbs down only” vote.
All of Alon’s facilities (Bakersfield, Edgington and Paramount) would have been classified as “Atypical” yet CARB staff only used the combined data for the Paramount/Edgington facilities when determining the benchmarking policy. This is a significant oversight, especially given how few data points are available. Leaving out Bakersfield’s data amounts to not including 20% of the potential data points in the Atypical category. Although the Edgington facility had minimal operations in 2008 or 2010, Bakersfield operated in its historic mode for the full year 2008. Its data should be considered in the data used to construct the policy analysis, and not considered “abnormal”. If Alon would have known that a last-minute policy change was to occur and the rationale for it was that the Atypical data set didn’t support it, we certainly would have insisted CARB include our data. But after five months, an adopted Board Resolution (13-44) and several staff released versions of new documents, all which showed two benchmarks, Alon was surprised by the policy reversal.
The CWB methodology measures a surrogate product - it does not account for true real product manufacturing efficiency. CWB is a synthetic measurement of a refinery’s “product,” BUT a refinery’s emissions on that product is affected by that refinery’s size and complexity. And, although the high energy intensity processes of large refineries can be efficient, they are not manufacturing real products like gasoline and diesel fuel as efficiently as the smaller refineries in the state because of the high energy intensity of their selected processes.
We believe our Paramount Refinery is the most CO2 emission efficient refinery in California at manufacturing real products (gasoline, jet fuel, diesel and asphalt) under the primary product barrel approach The refinery has operated at 20% to 40% below the first compliance period product benchmark of .0462 MT/product barrel. However under the CWB methodology it is the least efficient refinery for manufacturing Complexity Weighted Barrels, where during the same two years it operated at 40% to 95% above the proposed benchmark of 3.89 MT/CWB. Clearly something is wrong with the CWB methodology as proposed by CARB. We believe that the amount of energy required to produce a product barrel is a more realistic benchmark than the CWB and is consistent with the methodology used in other industries.
In addition, Solomon Associates (the creator of CWB) stated at the August 13, 2013 workshop that by nature of the structural constraints, the smaller, less complex refineries cannot achieve the CWB efficiencies of larger, more complex refineries, thus the need for an Atypical benchmark. Because two of the small refiners in California can meet the CWB benchmark efficiency level does not indicate that all of the atypical refiners can achieve the same. This is the result of their configuration and product mix. Neither of these two refineries is a gasoline manufacturer with one producing exclusively asphalt products and the other producing asphalt, solvents, lubes, and specialty oils (transformer and ink oils), with a very small CARB diesel capability.
A single benchmark creates big winners and losers. Shifting to a single CWB benchmark would require the Paramount refinery and at least two other small refineries to reduce emissions by 40% to 50% just to meet the benchmark level (90% of the average statewide CWB efficiency). This is a large financial burden, unrealistic and is very likely economically unachievable.
Is it equitable and logical policy to place this magnitude of burden on the smallest manufacturers of this sector to achieve relatively very small results using an artificial measure of efficiency (MT/CWB), when on a real product based measure (MT/BBL) similarly used by all other sectors, they are very likely the most efficient manufacturers of product in that sector? Shouldn’t the proper policy reward and encourage efficiency by this ultimate measure rather than punish (and maybe eliminate) these manufacturers?
ARB previously abandoned a single simple barrel approach (2010 benchmarking) because of similar detrimental impacts to individual facilities and selected a two-tier approach. That approach was precedential and should be followed again now with the reinstatement of the Atypical benchmark. Atypical refineries should be given the option of electing to use the Simple Barrel methodology.
In addition, how this lower single benchmark will impact the viability of either the new “Renewable Diesel Refinery”, or other commercial refining options, potentially collocated at the Paramount facility are unknown. To further complicate the issues, our long-term planning could include using our Long Beach facility in these new activities. Loss of the Atypical status for any of these facilities could have serious economic impacts. Recent conversations with your staff have confirmed that additional discussion and evaluation of the myriad of impacts is necessary as the regulation is rigid in its treatment of refineries and does not address unique operations. Alon will continue to work with staff to fully describe potential operating scenarios. But any such discussions should not impact benchmarking policy, which should be based on historical operations.
Detailed Comments—“Negative True-Up” or “Negative Allocation”
Lastly, Alon has continually raised the issue of the uniqueness of Asphalt refineries and how they could be addressed under the Cap and Trade regulation in general, and specifically under the CWB methodology. These issues have been discussed, but were “left off the table” due to limited staff resources, regulatory timing and other higher priority considerations. Alon accepted that only so much could be squeezed into this regulatory package, but we are concerned when stakeholder issues are pushed to future regulatory packages yet significant CARB-proposed late revisions are allowed to be introduced. Alon looks forward to continuing the discussion about how the Cap and Trade Regulation effects in-state asphalt production facilities and particularly the impact of ignoring their inherently real refined product barrel efficiency.
Thank you for your attention to this important matter. Any questions or follow-up comments can be directed to Gary Grimes . Additionally, Alon is available to help CARB work through these important issues.
Sincerely,
Glenn Clausen
Glenn Clausen
VP Paramount Operations
cc: Mary Nichols
Virgil Welch
Richard Corey
Edie Chang
Holly Stout
Steve Cliff
Rajinder Sahota
Mary Jane Coombs
Eileen Hlvaka
Mark Sippola